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Medicare Finds How Hard It Is to Save Money

An ambitious three-year experiment to see whether the Medicare system could prevent expensive hospital visits for people with chronic conditions like congestive heart failure and diabetes has suggested that such an approach may cost more than it saves.

The test borrowed a practice long available through private health plans. Nurses periodically place phone calls to patients to check whether they are taking their drugs and seeing the right doctors. The idea is that keeping people healthier can help patients avoid costly complications.

After paying eight outside companies about $360 million since mid-2005 to try to improve such patients’ health, Medicare is still trying to figure out whether the companies were able to keep people healthier. But the preliminary data indicate that the government is unlikely to save money.

The experiment, meanwhile, is proving something else: how difficult it can be, politically and practically, to make fundamental changes in the sprawling $400 billion federal Medicare program, which now covers some 44 million Americans.

With health costs soaring, few would dispute that the government needs to find better ways to spend its Medicare dollars. But because the system relies heavily on private industry and is subject to Congressional oversight, few changes come easily, and even experimental programs can take on lives of their own.

Several of the companies, including two that specialize in disease management, Healthways and Health Dialog, are pressing Medicare to continue the project in some fashion beyond the end of this year, saying the government mishandled the experiment.

The senators from the home states of those two companies, including John Kerry, Democrat of Massachusetts, and Lamar Alexander, Republican of Tennessee, have taken up their cause, demanding that Medicare rethink ending the experiment.

“Stopping this program,” the senators wrote in a letter to Medicare last month, “creates serious health risks for the Medicare beneficiaries already enrolled and heavily reliant” on the services provided by the experiment.

Medicare, for its part, says the experiment so far has not reduced medical bills enough to offset the fees the companies are charging the government — as much as $2,000 a year for each patient. A final accounting of the experiment is likely to come no sooner than next year.

About 160,000 people have taken part in the test, known as the Medicare Health Support program, and some 70,000 are still receiving calls from nurses employed by the companies.

Experts say that Medicare and the companies alike were too optimistic about how easy it would be to prevent costly complications and hospital visits by patients who are very sick.

“Everybody shares some blame,” said Dr. David B. Nash, a health policy professor at Thomas Jefferson University in Philadelphia, who at the outset was enthusiastic about the program’s prospects for transforming Medicare.

On the experiment’s front lines are nurses like Jill Coker, who works for Healthways and makes 25 to 30 telephone calls a day, trying to ensure that each patient receives a call every few weeks. Through dozens of such nurses, Healthways, based in Nashville, is overseeing the care of 16,000 people in Maryland and Washington.

Ms. Coker said she spent most of her time on rudimentary issues, like explaining to patients what prescription drugs they are on and helping them devise ways to make sure they remember to take their medicine. She may also arrange a conference call with a patient’s doctor if there are some worrisome new symptoms, or she may direct someone to a specialist to get better care.

“There have been numerous diabetics who didn’t even know what an endocrinologist was,” she said.

Medicare has not finished studying how well patients do under the program and whether patients are satisfied with the help. Three of the original companies — Cigna, McKesson and LifeMasters — eventually dropped out.

The program has failed to meet the government’s original financial target: an overall savings to Medicare of 5 percent after factoring in the companies’ fees and the patients’ medical bills.

Initially, the companies were supposed to return their payments if they did not hit that target. Late last year, Medicare relaxed its standard, requiring only that the experiment not end up costing the government money.

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The agency says that it will consider keeping any promising pieces of the program. But it says it cannot legally extend the experiment beyond December if it is not budget neutral.

“We want to lift up the seat cushions to find every nickel and dime we can find,” said Herb B. Kuhn, the deputy administrator for Medicare. The agency says no final decision on the fate of the program has been made.

But some health care experts say Medicare should move on to seek other ways of managing the care of the chronically ill, if alternatives seem to hold greater potential to deliver both cost savings and better care.

“Medicare is doing exactly what we should want Medicare to do — to test different life forms of disease management and see what works best,” said Dr. Arnold Milstein, the chief physician for Mercer Health and Benefits, a consulting firm. But, he said, “This particular form of disease management is not looking promising.”

Medicare is already exploring other ideas, like the development of so-called “medical homes,” where a doctor with a team of other professionals oversees a patient’s care. A few doctors’ groups involved in a separate Medicare experiment have reported some success in saving the government money by more actively managing their patients’ care.

Dr. Mark B. McClellan, who was the head of Medicare when the experiment began and is now a policy analyst at the Brookings Institution in Washington, says the point of Medicare’s experiments is to find out which approaches might work. “This is a hard problem that is not going to be solved all at once,” he said.

Many of the companies involved in the program say the experiment was flawed in the way it was designed and that Medicare has failed to work with them to make the program a success.

“We haven’t proven anything,” said Dr. Jeffrey L. Kang, a former Medicare official who is now the chief medical officer for the insurer Cigna.

The companies say Medicare signed up patients who were much sicker than they had expected. Instead of giving companies a chance to intervene before someone went to the hospital, Dr. Kang said, most of the patients were already so ill that it was “no longer a preventive program.”

The companies also say Medicare failed to make good on its promise to give them timely information about the use of prescription drugs, for example, or lab results that would have allowed them to help direct the patients’ care.

“We overestimated the real desire expressed by the organization,” said Ben R. Leedle Jr., the chief executive of Healthways, who has been an outspoken critic of Medicare. His company’s stock fell by 16 percent in a single day after the agency announced the experiment’s preliminary results in January.

Mr. Leedle says that Healthways will probably be able to demonstrate savings from at least some of its Medicare efforts, although the company also says it is projecting a loss on the experiment because it may have to pay back federal fees. Medicare has not made public data on the results for individual companies.

For its part, Medicare said that it had worked extensively with the companies to address their concerns and that its final analysis would take into account how sick the patients initially were.

One thing that already seems clear is that after the fees are paid to the contractors, any cost savings may be elusive. In late January, the agency estimated that to meet their targets the five remaining companies would need to reduce their monthly claims by an average of $300 to $800 per patient for the remainder of the experiment. That would represent a 20 to 40 percent reduction in the patients’ current medical bills.

George B. Bennett, the chief executive of Health Dialog, which is overseeing about 15,000 Medicare patients in western Pennsylvania, favors continuing the experiment, but with adjustments. He wants Medicare to give the companies more flexibility to manage patients in ways they say have already been proven to work among the employees they cover in commercial plans. Such measures, he said, include giving the insurer a bigger role in selecting the patients, with an eye toward identifying the ones most likely to be helped.

“Medicare actually has the possibility of saving $20 billion to $30 billion,” Mr. Bennett said, “if they undergo what is being done in the private sector.”

Whatever happens with this particular program, Medicare says it wants to keep experimenting. “We’re not giving up on this stuff,” said Mr. Kuhn, the Medicare deputy. “We definitely want these programs to work.”

A version of this article appears in print on , on Page A1 of the New York edition with the headline: Medicare Finds How Hard It Is To Save Money. Order Reprints|Today's Paper|Subscribe